Hamilton, New Zealand Following a monthlong break for the holidays, filming resumed January 17 in three locations: on the Hobbiton set here in Hamilton, a few hours north of Wellington; at Three Foot Six studios in Wellington; and at a recently constructed outdoor location near Wellington where the Battle of Helm's Deep will be filmed over the next few months (mostly at night, with stepped-up security and safety precautions).

A day trip to the Hobbiton site, on five acres of remote farmland, reveals a set that's, well, breathtaking. On our way, we stop at the crest of the hill to look down at the village. There's an old stone mill with a footbridge over a calm lake, with the Green Dragon Inn nestling behind.

Work on the set started in September 1998. While the lake existed prior to LOTR's arrival, most of the land was swamp, which had to be drained and cleared. Crew then laid down 5,000 kiloliters of soil to create the gently rolling hills of Hobbiton. A field overlooking the lake was replowed to appear like hobbit-farmed land.

Gardeners and technicians "repaired" the buildings and tended the flower and vegetable gardens to give a sense of generations of hobbit labor. The polystyrene buildings were expertly painted to look like weather-worn stone and wood, but they were also allowed to age naturally in the open air over the past year. As with the Amon Hen sets we saw last month, Hobbiton looks as if it's been here for years.

And it's not Disney-ized--the set looks real and lived in, with the beauty of a stretch of English countryside. The towering achievement is the ancient oak that stands above Bilbo Baggins' home, Bag End. LOTR crews constructed the tree, handpainting and attaching 250,000 leaves (and a few acorns) to its branches.

Between takes, crew members refill the hobbits' pipes, using a mixture of medicinal paraffin and incense, which creates thick, sweet-smelling smoke.

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Ian McKellen, fresh from wrapping The X-Men in Toronto, has arrived. After a few days to adjust fully to wizarding in the hot summer conditions, he's already in full stride. McKellen's Gandalf is a symphony in gray--huge, pointed gray hat, long gray beard, gray cape and silky, silvery-gray trousers. He will film here for a year. Ever the socialite, he's been spotted at some of Wellington's more glamorous nightspots. . Liv Tyler and Viggo Mortensen have returned and are filming on the Helm's Deep set. Ian Holm arrives at the end of February. After wrapping what some on the crew say was "a fantastic death scene," Sean Bean is back in Britain and won't return for filming until May.

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LOTR producer Tim Sanders shocked the production when he quit the project in early January. New Zealand-born Sanders, a longtime collaborator with director Peter Jackson, was with the project from its beginnings, and his work was crucial to securing and developing the three-picture deal with New Line.

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Sanders was unwilling to discuss the reasons for his departure, but he said he was proud of his work and confident the trilogy would be a success. LOTR officials deny rumors of a rift between Sanders and Jackson.

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Rumors of pay disputes between New Zealand and American crew members on set are also being denied. Sources say some New Zealand roadies are unhappy with an (alleged) rate of pay lower than their American counterparts. But many New Zealand crew members figure the scale and opportunities for LOTR are so much greater than their usual work.

"I was told I had to gain a lot of weight because Hobbits are very portly. Peter Jackson is forever suggesting I have more food. 'A little more shepherd's pie for Mr. Astin' " --Sean Astin weighs in on the demands of portraying Sam Gamgee.